The Politics of Poverty

Ideas and analysis from Oxfam America's policy experts

Celebrating wins, with political spins

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This guest blog was written by Shawnee Hoover, policy advisor, Oxfam America. After a long, hard-fought battle, the $6 billion tax break for corn ethanol known as VEETC (or the Volumetric Ethanol Excise Tax Credit), has lapsed after Congress passed on extending it. And as a result, a collective sigh of relief may be heard […]

This guest blog was written by Shawnee Hoover, policy advisor, Oxfam America.

After a long, hard-fought battle, the $6 billion tax break for corn ethanol known as VEETC (or the Volumetric Ethanol Excise Tax Credit), has lapsed after Congress passed on extending it. And as a result, a collective sigh of relief may be heard around the world by hunger advocates, as one burden is lifted on high food prices and hunger.

In Washington, the ethanol industry is spinning the loss as a win, claiming they voluntarily gave up the tax credit for the good of the nation. The ethanol industry’s most prominent representative, Bob Dinneen of the Renewable Fuels Association (RFA), spun the defeat by claiming to be “the first industry ever to give up a tax credit” saying their “sacrifice” came willingly for the “greater good.” The truth is that the industry fought tooth and nail for every last dollar right up to the end in 2011.

In fact, as recently as September 2011, RFA sent a letter pleading to the Co-Chair of the budget-cutting Congressional super committee not to cut the remaining tax credit. Doing so, they warned, would result in “market disruption.”

In March last year, Tom Buis, the CEO of another ethanol trade group Growth Energy, said that a bipartisan Senate proposal to end VEETC would risk the production of US ethanol and “be even more disruptive and more costly to our consumers and to our economy.” That’s not exactly voluntarily giving up the tax credit for the greater good of the people.

For years, a coalition of strange bedfellows has worked together to educate Congress about the multiple ills of corn ethanol production mandates and the tax incentive. Oxfam supporters did their part last year by sending nearly 40,000 emails, letters and petitions calling on Congress to end VEETC. Without fail, every single effort by Congress to reform or repeal the tax credit over the years was fought by the industry, who instead proposed replacing it with billions more in industry subsidies.

If the industry was really concerned with the greater good, they would stop trying to expand corn ethanol production and start investing in a transition to next-generation biofuels that aren’t made from corn or any other food crop. Instead, they’ve been lobbying to redefine corn ethanol as an “advanced biofuel” so it can qualify for more subsidies.

For anti-poverty, development groups like Oxfam, the biggest problem with US corn ethanol production is the impact it has on raising food prices and exacerbating global hunger. It’s basic supply and demand: diverting corn for fuel means corn for food becomes more expensive.

Since the US is the largest corn producer and exporter in the world, it drives global corn prices. So when US policy diverts 40% of US corn production to be used for fuel instead of food, it essentially makes 15% of the world’s corn unavailable for food.

We of course welcome the ethanol industry in celebrating the ending of VEETC. But, for us, it’s just a first step in solving the crux of the problem. The next step is for Congress to create a more effective and rational US biofuels policy by coming to terms with the main driver of corn ethanol production in this country—the mandate in the Renewable Fuels Standard (RFS). The mandate is heavily weighted toward traditional corn ethanol production and as such, artificially creates a demand for corn and increases prices.

Will the ethanol industry join the party for reforming RFS?

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